What The Heck Is A Bidding War?

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7 minute read

May 19, 2021

I have a hypothetical situation that I want to share, so please indulge me.

Humour me, is more like it, perhaps.  Since you may roll your eyes at this, but here goes.

Let’s say that a person sets out to do a survey.

Let’s say that person randomly polls 1,000 individuals.

Let’s say that it doesn’t matter where these individuals are polled, or what time, or who they are.  It’s just a random survey, like all random surveys.

The survey is one question and there’s merely an A vs. B answer.

The question in the poll is as follows:

If you had right-angle triangle and the hypotenuse was 17, the adjacent side was 8, and the opposite side was 15, is sin-theta the opposite divided by the hypotenuse, or the adjacent divided by the opposite?

How do you think the poll results would look?

Maybe 58% of respondents answered “opposite over hypotenuse,” or maybe 46% did.

Who knows?

Who cares!

If you’re polling people with a question they don’t understand, how in the world do you make sense of the results?

I suppose you can’t make sense of the results, right?

Whether it’s the subject matter of the question or a definition of a term in the question, I think it’s fair to say that in order for respondents in a survey to provide meaningful data that can accurately be relied upon, there has to be an understanding of what’s being asked.

On Tuesday, I was asked by a media member to comment on this story:

“Generation Gamble? Millennials More Willing To Engage In Bidding Wars To Get Their Dream Home: TD Survey Shows”

From the article:

According to a recent real estate survey commissioned on behalf of TD, one-third of Canadians surveyed (32 per cent), are willing to take part in a bidding war in order to secure their dream home, as housing prices continue to soar in many markets across the country.

Interestingly, the TD survey also reveals that a homebuyer’s willingness to offer above asking typically varies with age. More than half (51 per cent) of young adults under 35 are prepared to offer above list price, while fewer than one-third (31 per cent) of respondents between 35 and 54, and just 18 per cent of those 55 and older, are willing to do the same.

“There’s no question that the price of homeownership is much more than your down payment and monthly mortgage payments,” says Jared Jarman, Associate Vice President, Specialized Advice at TD.  “In today’s competitive environment, buyers need to ensure they’re keeping a close eye on their budget, building in some wiggle room so that they know they’re able to cover expected and unforeseen costs. A financial advisor can help by working with you to develop a budget that lets you know how much you may be able to afford before you begin to house hunt,” continues Jarman.

Despite a widespread willingness amongst younger survey respondents to enter a bidding war, most Canadians are still reluctant to bid over-asking when multiple offers are on the table. In this situation, 45 per cent of respondents said they would stand firm on their initial offer. But for those willing to do what it takes to win a bidding war, Jarman emphasized the importance of developing a budget range beforehand that allows for some flexibility. Even amongst Canadians open to going beyond the list price for their dream home, budgeting and setting limits is key, he adds.

The TD survey results also reveal how competitive respondents are willing to be. According to the survey, approximately two in ten (19 per cent) of competitive bidders said they would exceed the asking price by up to $50,000, while just 13 per cent would push their offer further, between $50,000 and $100,000 over-asking and beyond.

 


 

The interviewer asked me, “What conclusion do you draw from the fact that millennials surveyed are more likely to take part in a bidding war?”

I asked back, “What’s a bidding war?”

He chuckled and said, “Yeah, well, you know…”

I asked seriously, “No, I mean it.  What is a bidding war?  Define it.”

Here’s the problem with this survey: the term “bidding war” wasn’t defined before the question was asked to millennials, and thus millennials are simply relying on either their own definition of a “bidding war,” or what the surveyor leads on that a “bidding war” means, or maybe what the media defines as a “bidding war.”

But what is a bidding war?

Is this open to interpretation?

Can I answer for all of you?  Or is your definition more accurate?

Because, if we’re being honest, I expect that if everybody were permitted to define “bidding war” as they saw fit, we would get a lot of “two plus two equals five” sort of answers.

Let me give you three scenarios with respect to a multiple offer process.

Scenario #1:

A house is listed for sale in Toronto for $1,199,000.

Seven offers are submitted on the property.

The highest offer is $1,565,000.

That offers is accepted.

Scenario #2:

A house is listed for sale in Toronto for $1,199,000.

Seven offers are submitted on the property.

The highest offer is $1,565,000.

The second-highest offer is $1,561,000.

The third-highest offer is $1,536,000.

The listing agent extends an offer to the buyers with offers of $1,565,000 and $1,561,000 to improve their offers.

Those offers improve to $1,580,000 and $1,570,000.

The seller accepts the offer of $1,580,000.

Scenario #3:

A house is listed for sale in Toronto for $1,199,000.

Sixteen offers are submitted on the property.

The listing agent emails all sixteen buyer agents, in a single BCC email, and says, “All buyers shall have an opportunity to improve their offer.  Please ensure your revised offer is re-submitted by 6:00pm.”

Some of the dummy bids, ie. those around the list price, or slightly over, or with two conditions, end up improving, even though it’s a waste of time.

The top eight or nine offers all improve.

The listing agent then calls the buyer agents with the top five offers and says, “Congratulations, you’re now in the top five.  We invite you to improve your offers and resubmit.”

One of the five buyers says, “screw this,” and drops out, but the other four improve their offers and resubmit.

The listing agent reviews the four improved offers and then emails the four listing agents and says, “One agent has dropped out.  We invite you to improve your offers again and resubmit.”

This time, two buyers say, “Screw this,” and drop out.

The listing agent then calls the buyer agents with the top two offers and says, “We are down to only two offers.  It’s you against one other bidder.  You have one last chance to put your best offer on paper, and after that, the highest offer will be accepted.”

Both buyers improve their offers – now for a fourth time.

The highest offer is accepted.

Which of the three scenarios do you define as a “bidding war?”

Please feel free to answer in the comments section below, and explain why the scenario fits your definition.

Because you all know what I’m going to say, right?  After all, I obviously designed those three scenarios above according to my own definition of a “bidding war,” as well as scenarios which I do NOT think come close to fitting the description.

I feel like I’ve written this blog post before.

I probably have.

But are we really at the point where we’re referring using “multiple offers” and “bidding war” as synonyms?

Because they’re not.

Not even close.

The article above seems to link “bidding war” with “offering over the list price.”

Note the following:

…(32 per cent), are willing to take part in a bidding war…

Which is followed in the next paragraph by this:

a homebuyer’s willingness to offer above asking typically varies with age.

Can we draw a conclusion from these two lines?

Can we assume that the survey likens “offering above asking” is tantamount to “taking part in a bidding war?”

If so, then what would an actual bidding war be called?  I shudder to think.

The inherent problem with any survey is that if the individuals being surveyed don’t understand the question, let alone the subject matter, then the results are going to draw improper conclusions.

In this case, the surveyor seems to assume that “offering over list” is akin to “taking part in a bidding war,” and thus perhaps they skewed the interviewees’ responses in the process.

Then again, maybe the respondents themselves believe that “offering over list” is akin to “taking part in a bidding war,” in which case it’s like surveying children about trigonometry.

With respect to both the surveyor and those being surveyed, I simply can’t accept this as a definition of a “bidding war,” regardless of the level of knowledge and experience that either side possesses.

I have a very good relationship with the media and I enjoy doing interviews or going on morning shows.  It’s fun, it’s different, and I’m never lacking an opinion.  But I’m also going to call out inaccuracies where I see them, whether it’s something major, like the Financial Post headline from two weeks ago that was 100% incorrect, or something smaller like a misleading headline.

In this case, we seem to have invented news.

We’re looking to latch on to the buzz-words like “blind bidding” and “bidding war,” so we commission a survey, poll people about “taking part in a bidding war,” even though we don’t know what a bidding war is, and let the story write itself.  No matter what the results of this survey end up being, we’ll pull some data, form a conclusion, write an eye-catching headline that also includes the term “dream home,” and then put together a few hundred words and call it an article.

I’m really not a fan of this.

I know that TD commissioned this survey and it’s not like the Toronto Star set out to invent news, but every news outlet is going to pick this up and form their own headlines.

“TORONTONIANS LOVE BIDDING WARS!” the headline could read.

“MILLENNIALS SPENDING MONEY LIKE DRUNKEN SOLDIERS” another headline could read, if it were still proper in 2021 to use drunken soldiers as a simile.  Actually, I think it is.  Because war is bad, and anything bad isn’t covered by the wokesphere…

The headline that we saw above is just so damn misleading.

“Generation Gamble,” it reads.

But all of this is predicated on the idea that if you take a $1,000,000 house and list it for $799,900 with an offer date then anybody who dares offer “over the asking price” is deemed to be partaking in a bidding war.

Is that really a gamble?

Or are we just getting so many ‘clicks’ on real estate articles with negative headlines that we’re going out of our way to create these stories regardless of the accuracy?

Written By David Fleming

David Fleming is the author of Toronto Realty Blog, founded in 2007. He combined his passion for writing and real estate to create a space for honest information and two-way communication in a complex and dynamic market. David is a licensed Broker and the Broker of Record for Bosley – Toronto Realty Group

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23 Comments

  1. JF007

    at 7:12 am

    Interesting take David..for me a bidding war is anytime a buyer is asked to resubmit an improved bid..be it competing against another buyer or buyers..resubmit once or more than once doesn’t matter…but it definitely isn’t putting in a bid above list price cuz in today’s mkt list prices are a joke to begin with very few properties are listed at a price that seller actually wants..

    1. Ed

      at 8:48 am

      I agree, Scenario 2 and 3 would fall under my definition of a bidding war.

  2. Ed

    at 8:46 am

    Drunken sailors not soldiers. C’mon man.

    1. David Fleming

      at 10:44 am

      @ Ed

      But I have a photo of a soldier in today’s post! It was a play on words, no? 🙂

  3. Bal

    at 9:37 am

    Annual inflation accelerated to 3.4 per cent in April, compared with 2.2 per cent in March, Statistics Canada reported Wednesday in Ottawa. That exceeded economist predictions of a 3.2 per cent annual pace. On a monthly basis, inflation rose 0.5 per cent versus the 0.2 per cent economists ……Experts what are your thoughts ?

    1. Condodweller

      at 9:49 am

      My thought is we’re going to see headlines that say “Bank of Canada expected to raise interest rates to 1.5% at its next meeting due to exploding inflation by almost 60% above its target rate!”

      1. Bal

        at 10:26 am

        naa they wont …they just cannot…they will say it is temporary and only due to high Gas prices…lol…..maybe they don’t look at houses and food prices…lol …

          1. Bal

            at 10:50 am

            Chris – I have zero faith in Bank of Canada…they change their tone so fast…lol….but we all feel the inflation…..Last year million dollar house was way above my budget and this year i am thinking damn i could have easily afford million bcz that house is now 1,4 million….lol….but i think this inflation might be transitory…who knows. I think my problem is i am timing the market and that is back firing …lol

          2. Condodweller

            at 8:02 pm

            @bal I think your lack of faith in the bank of Canada is misplaced. They have been pretty transparent and consistent with what they say/do.

            I was exaggerating in line with David’s theme on sensational headlines of course but it may not be far off realty. If inflation starts to meaningfully climb above their target range, don’t be surprised to see rates climb exactly as they are warning in this article. You have kept your powder dry and more patience may reward you. But who knows. They are definitely trying to temper people’s expectations. Mark June 9 in your calendar.

            https://www.bnnbloomberg.ca/bank-of-canada-warns-home-buyers-rates-will-eventually-rise-1.1606377

  4. Condodweller

    at 9:38 am

    All the scenarios are bidding wars. A bidding wars is anytime a defined price is not given and buyers are invited to come up with their own price. The fact your are only given one chance, with no possibility to improve your bid, or whether or not the list price is above or below current fair market value is irrelevant, does but change the definition.

    1. Condodweller

      at 9:39 am

      But=not

    2. Sirgruper

      at 9:40 am

      That’s a bingo.

  5. Sirgruper

    at 9:39 am

    David. The whole article makes little sense. Young people are more likely to buy starter or first move up houses and that market is extremely competitive. A boomer buying a Richmond Hill home listed at $5,000,000 will likely not have competition. Also in the olden days underpricing was not the norm and a single buyer traded offers with a single seller. It’s not the buyer, it’s the market the buyer is in. Personally I believe all scenarios are bidding wars. Now there are wars like WW2 and there is the invasion of Grenada. Maybe scenario 1 is a conflict. But if you offer more than you would have due to another buyer’s bid, regardless you are in reality in a bidding conflict, skirmish, or other war like terminology.

  6. JL

    at 9:43 am

    I take the point about equating “multiple-bids” with “bidding war”, but technically you could call all three scenarios a bidding war; you’re bidding against other people, competing, to get the highest bid. Just because it’s a short (one round) war doesn’t mean it can’t still be a “war” (think intimidation tactics, buyer presentations, agent maneuvers, sympathy letters, etc).

    Having said that, it’s more sensible to use it more narrowly, with “bidding war” having some additional element beyond just multiple offers (like scenarios 2 and 3), but at the end of the day its somewhat of a colloquial phrase with a generalized meaning, so it will never have a strict definition. No need to get too wound up about it, IMO.

    But yes, asking “how much over ask” you are prepared to bid is senseless if the “ask” is usually a random variable amount below market value.

  7. Jimbo

    at 10:44 am

    I think all three are bidding wars because you are bidding against other offers on an offer night.

    If it is offer anytime and you get an offer, then you call agents that showed the property to see if they want to offer as well, then you are creating a bidding war if they also offer. (not saying this is a bad practice at all)

  8. Verbal Kint

    at 10:45 am

    Maybe if you’d been less obstreperous with the reporter, you’d have been mentioned closer to the top of the story, and at more length. Pasalis captured grafs five through seven, but you were marginalised down at eleven and twelve. Own goal.

  9. S M

    at 11:38 am

    You’re right David, there is a very simple definition (by itself) in “Bidding over ask price”, but NO such definition for a “Bidding war”.

    To me, a “Bidding war” is like your #3, when a seller’s agent intentionally generates angst and hype around the property, prompting too many people to do too many moves without a chance of buying.
    It quickly turns into a legal shell game, where false confidence is inspired and compulsive bids are elicited from too many clients.

    Still, even a Bidding war is a ying-yang partner of Bidding over asking price – both achieve the same result, namely the property goes to the highest bidder and no one is defrauded (or significantly hurt) in the process. Oftentimes, the top bidder(s) are the ones quite calm, collected, knowing what they can afford and winning by a significant margin.

    1. Bal

      at 11:54 am

      Everyone and everywhere they are creating panic……Mattamy will open two lots and within 5 minutes they will send another email saying…due to the high demand…all appointments booked…lollol….This is all just to create panic…Same thing with this over asking or bidding wars……..

      1. David Fleming

        at 12:02 pm

        @ Bal

        This is like my nightclub days of the late 1990’s and early 2000’s. There’s sixty people lined up outside behind a velvet rope, and when you finally get inside, the club is at 60% capacity. The lineups make people think the club is exclusive and popular. They’re creating false demand to increase interest and inflate value.

        1. Bal

          at 1:48 pm

          🙂

  10. noninear

    at 10:08 pm

    SOH-CAH-TOA.

    Nailed it.

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